Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see CK Asset Holdings Limited (HKG:1113) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase CK Asset Holdings' shares on or after the 13th of September, you won't be eligible to receive the dividend, when it is paid on the 26th of September.

The company's next dividend payment will be HK$0.39 per share, and in the last 12 months, the company paid a total of HK$2.01 per share. Based on the last year's worth of payments, CK Asset Holdings stock has a trailing yield of around 6.4% on the current share price of HK$31.40. If you buy this business for its dividend, you should have an idea of whether CK Asset Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately CK Asset Holdings's payout ratio is modest, at just 46% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out an unsustainably high 244% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how CK Asset Holdings intends to continue funding this dividend, or if it could be forced to cut the payment.

CK Asset Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were CK Asset Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by CK Asset Holdings's 16% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past nine years, CK Asset Holdings has increased its dividend at approximately 12% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid CK Asset Holdings? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though CK Asset Holdings is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering CK Asset Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for CK Asset Holdings that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.